Key Indian share market trends in the year 2017…

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Year 2017 is likely to be a year focused on specific stocks. There are 3 key reasons for this. Firstly, the market as a whole may not give any major directional move and the action will be more sector specific and stock specific. Secondly, there will be key themes that will emerge as the direct fallout of demonetization, GST, Trumponomics etc, which will create opportunities in the market. Lastly, some of the key trends will have an impact that will be disruptive and hence will have long term implications. We are saying that the market as a whole will not move directionally because the most profitable sectors like IT and pharma will be under pressure due to a possible change in US policy. The focus will be on stocks and more importantly on the following 5 key trends for 2017…

GST may emerge as a big theme for 2017…

To be fair, the implementation of GST will be effective from July 01st 2017 and it may be another 6 months by the time the actual impact is felt. But from a stock market perspective, a few trends may prospectively manifest itself. A lot will depend on the final GST rates that are agreed upon by the members of the GST council. But there are 2 key sub-trends that will benefit specific constituencies. Firstly, GST will lead to large Indian companies rethinking their logistics structure. Currently, the logistics structure consisting of warehousing, transportation and delivery is determined by the nature and rates of state level taxes. That makes the logistics structure functionally inefficient. Post-GST, there will only be one single national level tax. Hence, most Indian companies will have to rethink their entire logistics structure and make it more optimal from a business perspective. This will open up a billion dollar opportunity for Indian logistics companies and they will be one of the key sectors to watch out for in 2017. Secondly, GST will broaden the tax base and hence reduce the advantage that the unorganized segment enjoys today vis-à-vis the organized sector. Therefore, organized segments like paints, electrical goods and FMCG which are most susceptible to competition from unorganized segment today will be the big beneficiaries of GST. Keep a watch!

Digitization of money could be the game-changer in 2017…

Demonetization may have come and gone but the one trend it has irrevocably triggered off in India is the shift to digital money. As Indian consumers discover the comfort of digital money, it will open up a big opportunity for companies that focus on the digitization process. This may include companies that are into the manufacture of POS machines, companies that create software for digital transactions and companies that enable the last mile connectivity for digital transactions. All these companies could see a substantial expansion in demand and also in profits and could be the key sector to watch out for. Also, banks and retail chains that adopt the shift to digital money in a big way could be the indirect beneficiaries of this digitization trend…

Rural demand could be the silent story of 2017…

Union Budget 2017 will effectively be the penultimate full-fledged budget of this government. The 2019 budget will, in all likelihood, be a vote-on-account considering the impending central elections in 2019. The government will, therefore, leave no stone unturned to placate the rural masses. One can expect loan concessions and loan write-offs for farmers, higher levels of rural spending and investment in rural infrastructure, expansion of welfare schemes like MNREGA etc. All these measures will have a salutary impact on rural demand and rural purchasing power. Therefore, manufacturers of tractors, farm equipment, two–wheelers and marketers of rural FMCG products will be major beneficiaries of this enhanced rural spending. This will be the third major trend to watch out for in this year.

PSU stocks could be the surprise outperformers in 2017…

The suggestion may sound quite paradoxical, but PSUs could be the big theme for 2017. One only needs to look at the aggressive demand for the CPSE ETF to understand this trend. But what will be so special about PSUs in 2017. There could be 3 key drivers. Firstly, the government is likely to go ahead with strategic sale of loss-making PSUs aggressively. It also means that the government may not be too keen to hold on to majority stakes in most government companies. This will be positive for PSU valuations. Secondly, year 2017 may also see the first steps towards serious privatization of ownership and management of PSUs and the trend may begin with PSU banks. Thirdly, most PSUs are already strong dividend yield stories and the government may coax profitable PSUs to distribute a larger share in the form of dividend. In fact, PSUs could be the surprise package for 2017!

Stay cautious on IT and Pharma…

Will pockets of value emerge in IT and pharma during the year? It is highly likely that some of the stocks may be actually underpriced but momentum is likely to be unfavourable for both these sectors in 2017. For starters, the Trump Border Tax and the clamp down on easy visa rules are not good news for Indian IT companies. Trump has already indicated that he will protect domestic US jobs, even it means impacting global companies. Tighter immigration rules on top of tighter IT spending will only make the environment more challenging for IT companies. Pharma companies are already under the scanner of the US FDA over lax manufacturing and lab testing standards at Indian pharma companies. The recent decision to come down heavily on overpricing by pharma companies will only add to the jitters of Indian generic makers. These two sectors could come under pressure in 2017, notwithstanding any fundamental value case made in their favour.

In a nutshell, year 2017 could be an interesting year for stock markets. It will not be the year for macro themes and macro plays. For the patient micro-investor willing to take a bottom-up approach, there are likely to be opportunities aplenty!

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